On balance, economic conditions in the Fifth District remained weak in June and early July. Retail and services firm revenues continued to shrink, and contacts reported falling wages and steady or declining employment levels. Price growth in the service sector was slow. Commercial real estate activity softened further, with declining rents, increased concessions, and rising vacancy rates in some markets. Commercial lending activity continued to decline as loan demand remained subdued and some institutions reported tightened credit standards. Meanwhile, residential real estate contacts gave mixed reports about housing activity. Residential lending slowed as the slight increase in purchase loans was offset by a drop in demand for refinances. On a brighter note, manufacturing activity continued to strengthen in recent weeks as contacts reported increased shipments, new orders, and capacity utilization, and a moderation in the employment decline.

RetailRetail sales generally contracted in recent weeks as retailers reduced their inventories and shopper traffic remained down. The manager at a chain department store located outside the Washington, D.C., beltway observed retailers "fighting for a little piece of what money is out there." On the other hand, a grocer in southwest Virginia reported increased foot traffic, although "customers are not buying as much per transaction either in items or in dollar terms." Big-ticket sales languished, according to most contacts. Sales of domestically produced vehicles generally remained in the doldrums, although dealers of automobiles and light trucks told us that sales of foreign nameplates were soft to "pretty good," and a few building supply establishments in coastal South Carolina reported an uptick in sales. Many retail merchants cut payrolls, although some filled permanent or temporary vacancies. Growth in retail prices slowed somewhat in recent weeks, while average retail wages fell.

ServicesContacts at services firms reported that revenues declined since our last report, albeit at a slower pace. A financial services executive noted that people were more cautious and holding more cash than usual. According to a Virginia web-based business owner, "Projects either aren't starting or are running out of money." Consumers also cut back. The business manager at a fitness organization in central North Carolina said membership and class revenues fell in recent weeks. In contrast, executives at hospitals and healthcare systems reported steady demand for their services. An executive at a hospital in central North Carolina said the hospital was starting to see more unemployed patients, though most were covered by COBRA. Contacts generally noted either steady or declining employment. Average wages at services firms continued to shrink while price growth at services businesses was mild.

ManufacturingDistrict manufacturing activity continued to strengthen in June and the first half of July. Contacts reported increases in shipments, new orders, capacity utilization and the average workweek, while noting that the decline in employment had moderated considerably. Demand was notably stronger for apparel, chemicals, food, printing and publishing, rubber and plastics, and textile manufacturers. A spark plug producer in West Virginia observed a jump in orders and noted that, "customer forecasts going out 3 to 4 months are showing a steady increase." A contact at a chemical plant in South Carolina reported considerable growth in orders from China, India, and other East Asian markets, while a textile manufacturer in North Carolina observed that, "We passed the eye of the storm about four weeks ago." Contacts indicated that both raw materials and finished goods prices grew more slowly.

FinanceResidential lending activity slowed a bit in June and early July across the Fifth District. Contacts reported a slight increase in purchase loans; however, the uptick was not enough to offset a "dramatic" fall in demand for refinances. First-time purchases and conventional mortgages reportedly composed the bulk of activity, while contacts noted little demand for jumbo loans. Credit standards tightened a bit to adhere to changes in Freddie, Fannie, and FHA guidelines, but lenders reported no internal changes.

On the commercial side, lending activity continued to decline, with demand for loans "unseasonably low." Contacts reported an uptick in loan prices, especially for mid-grade borrowers. Credit standards were unchanged at some institutions, while others reported further tightening. Changes included requiring pre-existing depository relationships with the borrower, stricter adherence to policies on loan-to-value ratios and risk grade requirements, and increased scrutiny of paper work-especially for commercial mortgages. However, contacts stressed that despite more stringent credit standards over the last year, they were still lending. In addition, credit quality of existing portfolios was little changed since our last report.

Real EstateResidential real estate agents gave mixed reports about recent housing activity. In Fairfax, Va., a Realtor reported that the heart of the market was "hot" as houses in the $400K to $1.2 million price range sold the fastest. Similarly, contacts in the Washington, D.C., area reported sales increases over last year, fueled by sales of properties under $1 million. A Realtor in Greenville, S.C., said June had been his "best month" and that houses in the low- to middle-price range remained the best sellers. On a less positive note, Realtors in Richmond, Va., Greensboro, N.C., and Asheville, N.C., reported more sluggish house sales. The Richmond Realtor called sales "way off the mark" while the contact in Asheville observed his area "buckling down and weathering the storm." House prices either held steady or declined across much of the District.

Commercial real estate activity remained weak since our last report as contacts reported fewer prospects and smaller transaction sizes. Contacts cited multiple reasons for recent transactions that did occur, including firms cutting back on space, moving to a less expensive building, or extending existing contracts early in order to negotiate lower rental rates. Relatedly, rents softened across most District markets, while agents observed that concessions--especially free rent--remained widespread. Vacancy rates were fairly stable in Charleston, W.Va., and Greenville, but edged up in other markets. Contacts reported no new large development projects, which they believed would help limit increases in vacancy rates. Commercial sales were "practically nonexistent" in recent weeks. There were, however, a few sales for owner-occupied buildings, and a Charleston contact reported normal sales of office buildings, churches, and land. Additionally, owners not needing to sell immediately were reportedly pulling their properties off markets. Sales prices trended down in most District markets.

TourismAssessments of tourist activity varied since our last report. Along the coast, contacts reported that although the July 4th holiday weekend bookings matched or exceeded year-ago levels, summer business was generally weaker than a year ago. Analysts from Myrtle Beach, S.C., and Virginia Beach, Va., noted a considerably shortened booking cycle and double-digit discounts at many hotels. Moreover, a contact on the Outer Banks of North Carolina said that rental agencies were discounting heavily. A respondent at a mountain resort in West Virginia described holiday bookings as somewhat weaker than a year ago. In contrast, a manager at a mountain lodge in Virginia indicated that occupancy rates over the holiday were in line with last year, restaurants were busy, and retail numbers looked good.

Temporary EmploymentTemporary employment agents gave mixed reports on demand for workers in recent weeks. While a contact in Richmond, Va., reported a slight pickup in demand for workers in the medical industry, and a Hagerstown, Md., contact reported some increase in the government and education sectors, both saw generally reduced demand. In contrast, a contact reported "somewhat strong" demand in the Raleigh, N.C., area, especially for manufacturing labor, and another Raleigh contact noted a "reemergence" of several clients who had lately been "dormant." Some of the skills in greatest demand included workers proficient in IT and Microsoft Office, in addition to specialized managers and minimum wage workers.

AgricultureAlthough there were scattered reports of rainfall, dry conditions persisted in most areas since our last report. In North Carolina, South Carolina, and Virginia, analysts reported heightened concerns about inadequate soil moisture and crop development. In some places, however, the dry weather improved the progress of various crops. In Maryland, the harvest of most vegetable crops was in full swing and apple and peach crops in both Maryland and West Virginia were reported to be in generally good condition. Likewise, producers in Virginia completed the small grain harvest and the planting of double-crop soybeans.